How do you calculate the total output of a monopolist?
The monopolist is assumed to know his market demand (and the corresponding MR curve) and the cost structure of the different plants. The MC curve of the total output of the monopolist may be calculated by horizontally summing the MC curves of the individual plants: MC = MC 1 + MC 2 … … (1)
How will a multi-plant monopolist distribute the production over his many plants?
Thus, we come to the conclusion that the multi-plant monopolist will distribute the production of any particular quantity of output over his many (here two) plants in such a way that the MC in each plant may become the same; only then it would be able to produce the output at the minimum cost.
How does a monopolist decide to set the price?
However, given the downward sloping demand curve, these two decisions are interdependent; fulfilment of one decision leads to the fulfilment of the other. That is why the monopolist will either set the price or sell the amount that the market will absorb or determine output which will be sold at the corresponding price.
When does a monopolist reach equilibrium?
FOC states that a monopolist attains equilibrium when MC equals MR. We know that MR = AR (1 – 1/e). If the coefficient of elasticity of demand becomes greater than one (i.e., e > 1) at a particular point of a straight line demand curve, MR becomes positive. Costs are always positive. Equilibrium must occur when positive MC equals positive MR.
How much output should the monopolist produce?
One characteristic of a monopolist is that it is a profit maximizer. Since there is no competition in a monopolistic market, a monopolist can control the price and the quantity demanded. The level of output that maximizes a monopoly's profit is calculated by equating its marginal cost to its marginal revenue.
How much will a monopolist produce?
Monopolies will produce at quantity q where marginal revenue equals marginal cost. Then they will charge the maximum price p(q) that market demand will respond to at that quantity.
How does a monopolist determine output?
A monopolist can determine its profit-maximizing price and quantity by analyzing the marginal revenue and marginal costs of producing an extra unit. If the marginal revenue exceeds the marginal cost, then the firm should produce the extra unit.
How much will a monopolist produce quizlet?
A monopolist produces less than the socially efficient quantity of output and charges a price above marginal revenue, meaning that some mutually beneficial trades do NOT take place. As a result, Deadweight Loss exists in a monopoly. 1) Try to make monopolized industries more competitive.
How do you find the price and output of a monopoly?
A monopolist can determine its profit-maximizing price and quantity by analyzing the marginal revenue and marginal costs of producing an extra unit. If the marginal revenue exceeds the marginal cost, then the firm should produce the extra unit.
How do you find the profit maximizing output of a monopoly?
The profit-maximizing choice for the monopoly will be to produce at the quantity where marginal revenue is equal to marginal cost: that is, MR = MC. If the monopoly produces a lower quantity, then MR > MC at those levels of output, and the firm can make higher profits by expanding output.
How a monopolist decide the price and output of his firm in short run?
(a) Short Run Equilibrium: A monopolist faces a negative sloping demand curve or AR curve. If he wants to sell more he must lower the price of his product. The corresponding MR curve is also downward sloping and lies below the AR curve i.e., AR > MR.
How does a monopolist determine price and output in short run?
The monopolist will select the profit-maximizing level of output where MR = MC, and then charge the price for that quantity of output as determined by the market demand curve. If that price is above average cost, the monopolist earns positive profits.
How much output will the monopolist produce in order to maximize profit quizlet?
A monopoly firm maximizes its profit by producing Q = 500 units of output. At that level of output, its marginal revenue is $30, its average revenue is $60, and its average total cost is $34. $60. A monopoly firm maximizes its profit by producing Q = 500 units of output.
How a monopolist chooses the quantity of output to produce and the price to charge?
A monopolist chooses the amount of output to produce by finding the quantity at which marginal revenue equals marginal cost. It finds the price to charge by finding the point on the demand curve at that quantity.
What is the monopoly price and quantity?
In competition, the price is equal to marginal cost (P = MC), as in Figure 3.14. The competitive price and quantity are Pc and Qc. The monopoly price and quantity are found where marginal revenue equals marginal cost (MR = MC): PM and QM.
How will the price and output of a monopolist compare with perfect competition quizlet?
Monopolists charge higher prices than firms in a perfectly competitive market. Monoplists exploit their monopoly power and charge consumers high prices. Monopoly market output is much lower than output in the perfectly competitive market because Monopololists restrict output to a low level in order to keep prices high.
Can a monopolist sell as much as they want?
It may choose to produce any quantity. But, unlike the perfectly competitive firm, which can sell all it wants at the going market price, a monopolist can sell a greater quantity only by cutting its price. Suppose, for example, that a monopoly firm can sell quantity Q 1 units at a price P 1 in Panel (b).
How do you calculate monopoly price?
3.5.2 Welfare Effects of Monopoly In competition, the price is equal to marginal cost (P = MC), as in Figure 3.14. The competitive price and quantity are Pc and Qc. The monopoly price and quantity are found where marginal revenue equals marginal cost (MR = MC): PM and QM.
Is a single price monopoly efficient?
In a single-price monopoly, the equilibrium quantity, QM, is inefficient because the price, PM, which equals marginal benefit, exceeds marginal cost. Underproduction creates a deadweight loss.
Why is a monopolist a price maker?
True. A monopoly is a price maker. In monopolist type of market there are no competitors. Having no competitors and no close substitutes enables the monopolist to influence the price in the market and hence is called as the price maker.
What is essential for profit maximization?
What is essential for profit-maximization is the fulfilment of both FOC and SOC. Under monopoly, like perfect competition, the ‘golden rule of output’ determination is MC – MR equality.
What is the LAC and LMC curve?
In Fig. 5.3, LAC and LMC are the long run average cost and long run marginal cost curves. Corresponding to the equilibrium point E, the monopolist produces and sells OQ output at the price OP. Fig. 5.3 (a) shows a situation of supernormal profit to the extent of RSTP since costs are lower then revenue, i.e.,
What happens if the AC curve lies above the AR curve?
In other words, if AC curve lies above the AR curve at the corresponding level of output, the firm will suffer a loss. However, a monopolist will continue production in the short run (i.e., minimizes losses) if he covers up only AVC. In other words, if the loss of the monopolist is equivalent to fixed cost he will stay in business.
What happens if a monopolist fails to cover up variable cost?
Loss then amounts to only fixed cost. But, if the monopolist fails to cover up variable cost, i.e., if P < AVC, only then will he suspend production. He will ‘drop out’. Of course, there cannot be loss in the long run.
Where does a monopolist operate at the lowest point of his AC curve?
Secondly, a monopolist never operates at the lowest point of his AC curve where cost becomes the least. Actually, he operates somewhere to the left of the minimum point of his AC curve, be it in the short run or in the long run. In Figs. 5.2 and 5.3, the lowest point of AC curve has been represented by the point F.
Why is demand curve downward sloping?
This happens due to the nature of the demand curve. As the demand curve is downward sloping it must be tangential to the falling portion of AC curve. Operation at this point implies that the monopoly firm cannot utilize its plant optimally. Or it implies under-utilization of resource.
When is normal profit enjoyed by the monopolist?
That is to say, normal profit is enjoyed by the monopolist when AC curve at a particular point coincides with the AR curve.
How does a monopolist maximize its profit?
This means that the monopolist maximises its profit by utilizing each plant up to the level at which marginal cost of plant A is equal to that of plant B and both are equal to the common MR This is because if the MC of one plant, say A is lower than the marginal cost of plant B, the monopolist would increase his profit by increasing production in A and decreasing it in B, until the above equality (2) holds.
What is the monopolist assumed to know?
The monopolist is assumed to know his market demand (and the corresponding MR curve) and the cost structure of the different plants.
What is the goal of a multi-plant monopolist?
The goal of the multi-plant monopolist is also to maximise profit.
Can a single plant monopolist become a multi-plant monopolist?
In the long run a single plant monopolist may become a multi-plant monopolist. So we may now examine the case of a monopolist who produces a homogeneous product in two different plants. However the same analysis can be extended to cover any number of plants.
